How to Choose a 3PL Partner: Complete Third-Party Logistics Guide

Choosing a third-party logistics (3PL) provider is one of the most important decisions for growing e-commerce businesses. The right partner can accelerate growth; the wrong one can damage your brand and bottom line.

What Is a 3PL?

Definition

A third-party logistics provider (3PL) is a company that handles logistics operations for other businesses, including:

• Warehousing and storage
• Inventory management
• Order fulfillment (pick, pack, ship)
• Shipping and carrier management
• Returns processing
• Sometimes additional services

Types of 3PL Providers

Warehouse/Distribution-based 3PLs:

• Traditional warehousing focus
• Regional or national coverage
• Various technology levels
• Examples: Red Stag, ShipMonk

Technology-first 3PLs:

• Software-driven operations
• Strong integrations
• Real-time visibility
• Examples: ShipBob, Deliverr (Flexport)

Carrier-affiliated 3PLs:

• Connected to major carriers
• Specialized services
• Examples: FedEx Fulfillment, UPS SCS

Niche 3PLs:

• Industry specialists
• Specialized handling
• Examples: Cold chain, hazmat, oversized

When to Consider a 3PL

Signs You're Ready

Volume indicators:

• 100+ orders per month (minimum)
• 300+ orders per month (optimal)
• Spending significant time on fulfillment
• Storage space becoming a challenge

Business indicators:

• Growth rate exceeds capacity
• Customer complaints about shipping
• Unable to focus on core business
• Geographic expansion goals

When to Stay In-House

Consider keeping fulfillment:

• Low order volume
• Highly customized orders
• Complex assembly required
• Margins too thin for 3PL fees
• Brand experience requires control

Evaluating 3PL Providers

Key Criteria

1. Location and Coverage

Why it matters:

• Shipping cost and speed
• Customer delivery experience
• Inventory positioning

What to evaluate:

• Warehouse locations
• Proximity to your customers
• Multi-warehouse capability
• International options

2. Technology and Integrations

Critical capabilities:

• Real-time inventory visibility
• Order management system
• API availability
• Platform integrations (Shopify, Amazon, etc.)

Questions to ask:

• What platforms do you integrate with?
• How real-time is inventory sync?
• Is there an API for custom needs?
• What does the client portal look like?

3. Pricing Structure

Common fee types:

• Receiving fees (per unit/pallet)
• Storage fees (per pallet/bin/cubic foot)
• Pick and pack fees (per order + per item)
• Shipping (carrier costs + markup)
• Returns processing
• Account/software fees

Pricing models:

• Per-unit pricing
• Per-order pricing
• Hybrid models
• Minimum commitments

4. Services Offered

Core services:

• Receiving and putaway
• Inventory management
• Pick, pack, ship
• Returns processing
• Shipping carrier options

Value-added services:

• Kitting and assembly
• Custom packaging
• Subscription box fulfillment
• Gift wrapping
• Quality inspection

5. Scalability

Growth considerations:

• Capacity for peak seasons
• Geographic expansion capability
• Technology scaling
• Contract flexibility

6. Accuracy and Performance

Key metrics to evaluate:

• Order accuracy rate (target: 99.5%+)
• On-time shipping rate
• Inventory accuracy
• Return processing time

Due Diligence Process

Step 1: Initial research

• Online research and reviews
• Industry recommendations
• Request information from 5-10 providers

Step 2: Narrow the list

• Evaluate against criteria
• Eliminate obvious mismatches
• Request detailed proposals
• Shortlist to 3-5 providers

Step 3: Deep dive

• Detailed pricing analysis
• Reference checks
• Warehouse tour (virtual or in-person)
• Technology demonstration

Step 4: Final selection

• Negotiate terms
• Review contract carefully
• Plan implementation

Popular 3PL Providers Compared

For Small to Mid-Size Sellers

ShipBob:

• Strengths: Technology, integrations, 2-day shipping program
• Minimum: ~200 orders/month recommended
• Locations: US, UK, EU, Australia, Canada
• Best for: DTC brands, Shopify sellers

ShipMonk:

• Strengths: Competitive pricing, variety of services
• Minimum: Lower volume OK
• Locations: US (multiple), Mexico, UK
• Best for: Growing e-commerce, subscription boxes

Deliverr (now Flexport):

• Strengths: Fast shipping badges, marketplace integration
• Minimum: Flexible
• Locations: US network
• Best for: Marketplace sellers wanting Prime-like badges

Red Stag Fulfillment:

• Strengths: Heavy/oversized items, accuracy guarantees
• Minimum: ~200 orders/month
• Locations: US (TN, UT)
• Best for: Heavy products, accuracy-critical

For Larger Volumes

Flexport:

• Strengths: End-to-end supply chain, freight + fulfillment
• Minimum: Higher volume preferred
• Locations: Global
• Best for: International supply chain, larger operations

Rakuten Super Logistics:

• Strengths: National distribution, enterprise features
• Minimum: Higher volume
• Locations: US (multiple)
• Best for: Mid-market to enterprise

FedEx Fulfillment:

• Strengths: FedEx integration, ground network
• Minimum: Higher volume
• Locations: US network
• Best for: FedEx-focused shipping

Specialized 3PLs

Cold chain: Preferred Freezer, Lineage Logistics Hazmat: Hazmat shipping specialists Oversized: Red Stag, specialized providers Apparel: Many general 3PLs, some specialists

Cost Analysis

Understanding 3PL Costs

Typical cost components:

Calculating Total Cost

Per-order estimate (example):

• Pick fee (3 items): $0.75
• Pack fee: $2.50
• Packaging: $0.50
• Shipping: $5.00
• Total: $8.75/order

Monthly estimate (500 orders):

• Fulfillment: $4,375
• Storage: $500
• Software: $100
• Total: ~$5,000/month

Cost Comparison Framework

Compare to in-house costs:

• Your labor cost per order
• Storage facility cost
• Packaging materials
• Shipping rates (likely higher)
• Error/return costs
• Opportunity cost of time

Implementation Guide

Pre-Implementation

1. Prepare your data:

• SKU master list
• Product dimensions and weights
• Current inventory counts
• Sales velocity by SKU
• Packaging requirements

2. Clean up processes:

• Standardize SKUs
• Document procedures
• Clear packaging specs
• Define exception handling

Implementation Steps

Week 1-2: Setup

• Account creation
• Integration configuration
• Product data upload
• Packaging specs defined

Week 3-4: Inventory transfer

• Ship inventory to 3PL
• Receiving and putaway
• Inventory reconciliation
• Test orders

Week 5+: Go-live

• Switch order routing
• Monitor closely
• Address issues quickly
• Adjust processes as needed

Common Implementation Mistakes

Avoid these errors:

• Rushing implementation
• Incomplete product data
• Insufficient testing
• No backup plan
• Poor communication

Managing Your 3PL Relationship

Key Performance Indicators

Track these metrics:

• Order accuracy (%)
• On-time shipping (%)
• Inventory accuracy (%)
• Return processing time
• Customer complaints

Regular Review Cadence

Weekly:

• Order and shipping metrics
• Exception review
• Issue resolution

Monthly:

• Cost analysis
• Performance trends
• Volume forecasting
• Relationship check-in

Quarterly:

• Business review
• Pricing evaluation
• Strategic alignment
• Contract review

Troubleshooting Common Issues

Inventory discrepancies:

• Request cycle count
• Review receiving processes
• Audit shrinkage
• Improve communication

Shipping delays:

• Review carrier selection
• Check cutoff times
• Evaluate capacity
• Consider backup carriers

Order errors:

• Root cause analysis
• Process improvement
• Additional quality checks
• SKU confusion review

Contract Considerations

Key Terms to Negotiate

Pricing:

• Volume discounts
• Rate locks
• Minimum commitments
• Fee transparency

Performance:

• SLA commitments
• Credit for failures
• Accuracy guarantees
• Response times

Flexibility:

• Contract length
• Exit provisions
• Scaling terms
• Seasonal adjustments

Red Flags in Contracts

Watch for:

• Long lock-in periods
• Hidden fees
• No performance guarantees
• Difficult exit terms
• Unclear dispute resolution

Making the Decision

Decision Framework

Score potential 3PLs on:

• Technology/Integration: /10
• Location/Coverage: /10
• Pricing: /10
• Services: /10
• Scalability: /10
• References: /10
• Culture fit: /10

Final Validation

Before signing:

• [ ] Visited warehouse (virtual or in-person)
• [ ] Checked at least 3 references
• [ ] Understood all costs
• [ ] Reviewed contract with lawyer
• [ ] Confirmed technology integrations work
• [ ] Discussed implementation timeline
• [ ] Identified primary contacts

Key Takeaways

Don't rush: Thorough evaluation prevents expensive mistakes

Technology matters: Integrations and visibility are critical

Location affects cost: Proximity to customers saves money

Pricing is complex: Understand total cost, not just per-unit

References are essential: Talk to current clients

Contracts matter: Negotiate favorable terms upfront

Relationship is ongoing: Good partners grow with you

Choosing the right 3PL partner can transform your business operations. Take time to evaluate options thoroughly, understand the true costs, and build a relationship with a partner aligned with your growth goals.